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<p>This study examines whether firm-level pricing power influences innovation investment among Indian listed non-financial firms. The study is motivated by India’s relatively low and uneven private-sector R&amp;D participation, despite increasing policy emphasis on innovation-led industrial growth. Drawing on Schumpeterian innovation theory and the internal finance hypothesis, the study argues that firms with stronger pricing power can generate higher operating margins and internal financial slack, which may help them finance long-term and uncertain R&amp;D activities. Pricing power is measured using the Lerner Index, while innovation investment is captured through R&amp;D intensity. The analysis uses BSE 500 non-financial firms over the period 2012–2024, forming a balanced panel of 4,550 firm-year observations. Fixed Effects panel regression is employed as the baseline estimation method to control for unobserved firm-specific heterogeneity, while System GMM is used to address endogeneity. The findings show that pricing power has a positive and significant effect on R&amp;D intensity. The results remain consistent after applying System GMM, suggesting that the relationship is not driven merely by firm heterogeneity or simultaneity bias. These findings contribute to the market power–innovation debate by showing that pricing power can operate as an internal finance mechanism for innovation in an emerging economy. The study offers implications for managers, policymakers, and investors seeking to strengthen private-sector innovation in India.</p>

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Pricing power and innovation investment: evidence from Indian firms

  • 期刊论文

  • 发表日期：

    2026年4月30日

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  • Ashutosh Parhi,
  • Saroj Kumar Routray

摘要

This study examines whether firm-level pricing power influences innovation investment among Indian listed non-financial firms. The study is motivated by India’s relatively low and uneven private-sector R&D participation, despite increasing policy emphasis on innovation-led industrial growth. Drawing on Schumpeterian innovation theory and the internal finance hypothesis, the study argues that firms with stronger pricing power can generate higher operating margins and internal financial slack, which may help them finance long-term and uncertain R&D activities. Pricing power is measured using the Lerner Index, while innovation investment is captured through R&D intensity. The analysis uses BSE 500 non-financial firms over the period 2012–2024, forming a balanced panel of 4,550 firm-year observations. Fixed Effects panel regression is employed as the baseline estimation method to control for unobserved firm-specific heterogeneity, while System GMM is used to address endogeneity. The findings show that pricing power has a positive and significant effect on R&D intensity. The results remain consistent after applying System GMM, suggesting that the relationship is not driven merely by firm heterogeneity or simultaneity bias. These findings contribute to the market power–innovation debate by showing that pricing power can operate as an internal finance mechanism for innovation in an emerging economy. The study offers implications for managers, policymakers, and investors seeking to strengthen private-sector innovation in India.